STRENGTH MATTERS

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STRENGTH MATTERS
Friday, September 11, 2009
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Objectives

• Introduce the STRENGTH MATTERS initiative
• Discuss the background of this initiative
• Highlight the Financial Reporting Best Practice
  Papers produced by the CFO Working Group
• Going forward

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STRENGTH MATTERS

• A national collaborative sponsored by
   NeighborWorks America, Housing Partnership
  Network (HPN), and Stewards of Affordable Housing
  for the Future (SAHF), with ongoing support from
  The John D. and Catherine T. MacArthur
  Foundation. 
• Our partners also include
• Local Initiatives Support Corporation
• Enterprise Community Loan Fund
• Low Income Investment Fund
• Calvert Foundation
• Housing Partnership Fund
• NeighborWorks Capital

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• Matt Perrenod, Chief Lending Officer, Housing
  Partnership Fund
• Frank Buss, CPA, Partner, Novogradac Company,
  LLP
• Winell Belfonte, CPA, Principal, Reznick Group,
  P.C.
• D Valentine, Chief Financial Officer, Bridge
  Housing, Inc.
• Moderator Frances Ferguson, NeighborWorks America

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Why now? Lender and Accounting Perspective
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Increasing Focus on Borrower

• Emphasis on core strength
• Supports equity-like lending
• Reaction to unsteady markets
• Weakening collateral
• But borrowers dont look alike!
• Variety of business lines
• Complex relationship to real estate
• Inconsistent approach to reporting
• a. Consolidation vs. parent-only
• b. Recognition of developer fees

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Understanding the Story

• Different organizations, different narratives
• Example consolidated vs. core
• Revenue model access to operating income?
• Contingent liability exposure
• Is there residual value in the real estate?
• What horizon are you trying to understand?
• Need consistent consolidating principles
  schedules

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How We Got Here

• FASB SOP 94-3-1 Omnibus Changes to
  Consolidation
• FIN 46 (r) Consolidation of Variable Interest
  Entities (VIEs)

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Down from On-High..

• EITF 04-05
• Determining When a General Partner, or General
  Partners as a Group, Controls a Limited
  Partnership or Similar Entity when the Limited
  Partners have Certain Rights

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Implementation Date

• June 29, 2005 for new LPs and existing
  partnership for which the partnership agreements
  are modified.
• No later than the beginning of the first
  reporting period of the fiscal year beginning
  after December 15, 2005 for all other LPs.

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Presumption of Control

• Kick out rights
• Ability to be removed without cause
• Participating rights
• Effectively participate in significant decisions
  that would be expected to be made in the ordinary
  course of the limited partnerships business
• Protective rights
• Limited partners ability to block certain
  actions of the limited partnership (amendments,
  dissolution, acquisitions and dispositions etc.)

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Multiple General Partners

• Who has control?
• May result in no consolidation

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Consistency

• Fiscal Year vs. Calendar Year
• June 30 Enterprise and 12/31 LIHTC
• 18 Month Audit or 6 Month Audit?
• Pros and Cons

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How? Building Industry Guidance
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Topic Paper Background and Process

• Topics selected by CFO group, prioritized for
  detailed review and topic paper release
• Topic 1 Determination of Parent Organization
  Fiscal Year-End
• Topic 2 Presentation Comparative Statements
  vs. Non-comparative Statements
• Topic 3 Consolidation Issues Elimination and
  Presentation of Minority/Non-controlling Interest
• Continuing to topic 17 currently

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Acknowledgements STRENGTH MATTERS gratefully
acknowledges the work of staff from Novogradac
and Company LLP and The Reznick Group and the
following individuals that contributed to this
paper Allison Clark, The John D. and Catherine
T. MacArthur Foundation, Chicago, IL Kent
Hawkins, NeighborWorks America, Kansas City,
MO Caroline Horton, AEON, Minneapolis, MN Joe
Kasberg, National Church Residences, Columbus,
OH Michael Kurtz, Common Ground, New York,
NY Jeff Reed, Community Housing Partners
Corporation, Christiansburg, VA David Seabrook,
Community Preservation Development Corporation,
Washington, DC Scott Seamands, Lindquist, von
Husen Joyce LLP, San Francisco, CA Brian
Shuman, Mercy Housing, Inc., Denver, CO D
Valentine, BRIDGE Housing, San Francisco, CA Mary
White Vasys, Vasys Consulting Ltd, Chicago,
IL Laura Vennard, Preservation of Affordable
Housing, Inc., Boston, MA
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Disclaimer

• This document is a product of STRENGTH MATTERS, a
  collaborative initiative among national and local
  organizations in the affordable housing field,
  co-sponsored by NeighborWorksAmerica, Housing
  Partnership Network and Stewards of Affordable
  Housing for the Future.

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Format of Topic Papers Once a topic is up for
dialogue

• Discuss topic with CFO group and accounting firms
  
• Review CFO Group financial statements and how the
  issue is handled by each organization
• Novogradac makes a first draft paper on the
  topic based on above discussion and research,
• Revisions/edits are suggested by the CFO Group
  and Novogradac updates draft and redistributes
• If CFO Group approves of updated draft, the topic
  is finalized as a product of the STRENGTH MATTERS
  group.
• Disclaimer on all topic papers

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Format of Topic Papers

• Issue
• Applicable GAAP guidance
• Analysis/facts on the topic paper
• CFO input
• Conclusion
• Examples, if applicable

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Format of Topic Papers Conclusion

• How does the topic paper affect the affordable
  housing industry and non-profit organizations?
• A conclusion as to how the issue should be
  handled within the framework of GAAP and current
  CFO guidance.

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What? The Topic Papers
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CFO Best Practice Papers TOPICS

• Topic 1 Determination of Parent Organization
  Fiscal Year-End
• Topic 2 Presentation Comparative Statements
  vs. Non-comparative
• Statements
• Topic 3 Consolidation Issues Eliminations
  and Presentation of
• Minority/Non-controlling Interests
• Topic 4a Developer Fee Recognition
• Topic 5 Determination and Presentation of
  Supplemental Information
• Topic 6 Preparation of the Statement of
  Financial Position
• Topic 7 Net Assets Section of the Statement of
  Financial Position
• Topic 8 Statement of Functional Expenses
  Methodologies and Combining
• Allocation Methodology

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CFO Best Practice Papers TOPICS (cont.)

• Topic 9 Issuance of Stand-Alone Financial
  Statements or Parent-Only Financial
• Statements
• Topic 10 Allowances for Receivables
• Topic 11 Capitalization of Fixed Assets
  (Policy)
• Topic 12 Statement of Activities
• Topic 13 Statement of Cash Flows
• Topic 14 Segment Reporting
• Topic 15 Cash Presentation
• Topic 16 Footnote Disclosures
• Topic 17 Contingent Liabilities

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Topic 1

• Why was it chosen?
• Why is it important?
• Potential pitfalls/issues
• Benefits

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Topic 1 Determination of Parent Organization
Fiscal Year-End

• GAAP
• CFO Group input
• Conclusion
• Applicable authoritative pronouncements

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Topic 1 Executive Summary

• It is possible for a parent entity to consider a
  fiscal year-end that is three months before or
  after the year-end of its subsidiary entities.
  Based on GAAP, this would be an acceptable
  practice, but may create practical issues and
  challenges, especially with the reconciliation of
  intercompany accounting. Consolidated financial
  statements prepared where the fiscal year-end of
  the parent and its subsidiaries differs by more
  than three months would not be considered
  prepared in accordance with GAAP.
• We suggest that the industry change to a
  calendar year-end for their parent and subsidiary
  entities. Each organization should still
  evaluate its individual situation to determine
  the best year end fit based on their company
  requirements and other factors such as staffing
  considerations

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Topic 3 Consolidation Issues Eliminations
and Presentation of Minority/Non-controlling
Interests
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Wrap-up
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Contact Information

• D. Valentine 415-321-3577 or
  dvalentine_at_bridgehousing.com
• Frances Ferguson [phone] or
  fferguson_at_nw.org
• Frank Buss 330.602.4600 or frank.buss_at_novoco.c
  om
• Matt Perrenod [phone] or
  www.housingpartnership.net
• Winell Belfonte [phone] or
  www.reznickgroup.com

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Next steps

• Please register at www.strengthmatters.net
• Contribute to the progress
• Members Welcome! Here you will find
  Financial Reporting Best Practices papers from
  the STRENGTH MATTERS CFO Working Group. Other
  documents will be posted in the coming months.
  Please send any comments on the papers by email
  to info_at_strengthmatters.net.
• Immediate feedback Please respond to the survey
  that will appear on your screen as you exit the
  webinar.